Once the debt is transferred to the SPV, Air India’s annual interest liability will be around Rs 1,700 crore per year, down from Rs 4,400 crore currently.

An Air India aircraft takes off from the Sardar Vallabhbhai Patel International Airport in Ahmedabad.(REUTERS)

In an attempt to reduce the annual interest burden of Air India, the government has decided to transfer Rs 29,000 crore of the Rs 55,000 crore owed by the national carrier to a special purpose vehicle (SPV), civil aviation secretary RN Choubey said on Thursday.

Air India Asset Holding Limited (AIAHL), as the SPV will be known, will either raise money to clear the debt directly or pay lenders monthly at different interest rates. To transfer the debt to the SPV, the government will need to secure permission from various creditors, which can be a lengthy process. To avoid that, the government is also weighing the option raising money and paying off the debt in one go.

“We are expected to take care of about Rs 29,000 crore of debt so that Air India doesn’t have to worry about the interest on the debt. ...about Rs 26,000 crore of debt will still remain with the airline, which they will have to manage. The SPV can raise money on the government’s guarantee. Air India will have to take clearance from lenders,” Choubey said.

Once the debt is transferred to the SPV, Air India’s annual interest liability will be around Rs 1,700 crore per year, down from Rs 4,400 crore currently.

The National Democratic Alliance (NDA) government’s attempt to privatise Air India failed this year when it found no takers for the airline. Choubey said the reason no bidder came forward was that the macroeconomic conditions were not conducive. The government has already made it clear that Air India will have to cut costs and increase revenue in return for financial support from the government. Air India chairman and managing director Pradeep Singh Kharola made a presentation before a group of minister and listed around a dozen areas for potential cost-cutting and revenue enhancement that could yield the airline yearly benefits of Rs 2,000 crore.

On Tuesday, the government decided to sell off the national carrier’s ground handling arm Air India Air Transport Services Ltd (AIATSL).

“The government should have done these 2-3 years ago and it would have helped them in privatisation. Air India has immense value and government should take care of the national carrier,” said Mark Martin,founder and chief executive officer of Dubai-based Martin Consulting.

In a separate development on Thursday, the chiefs of SpiceJet and GoAir met Choubey, seeking lower airport charges and asking for aviation turbine fuel (ATF) to be brought under the goods and services tax (GST) regime, which may lower the fuel bill of airlines.

“We would like to help as much as we can but the issue is of ability to survive in a competitive environment. I have promised to look into the ATF part and we are hopeful that it will take into the next GST Council meeting,” Choubey said.